Q9B. What are some comparative advant... [FREE SOLUTION] (2024)

FAQs

What are examples of comparative advantage? ›

A contemporary example: China's comparative advantage with the United States is in the form of cheap labor. Chinese workers produce simple consumer goods at a much lower opportunity cost. The United States' comparative advantage is in specialized, capital-intensive labor.

Popularized by David Ricardo, comparative advantage argues that free trade works even if one partner in a deal holds an absolute advantage in all areas of production. As such, one partner makes products cheaper, better, and faster than its trading partner.

Comparative advantage is the ability of a firm or individual to produce goods and/or services at a lower opportunity cost than other firms or individuals. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.

The theory of comparative advantage holds that even if one nation can produce all goods more cheaply than can another nation, both nations can still trade under conditions where each benefits. Under this theory, what matters is relative efficiency.

A person has a comparative advantage at producing something if he can produce it at lower cost than anyone else. Having a comparative advantage is not the same as being the best at something. In fact, someone can be completely unskilled at doing something, yet still have a comparative advantage at doing it!

A solid competitive advantage should be difficult to copy or recreate within another business. Examples of competitive advantages are unique geographic location, highly skilled workers, recognizable brand image, technological expertise, and excellent customer service.

To determine comparative advantage you have to calculate per unit opportunity cost using the formula give up/gain (the amount of good you are giving up divided by the amount of good you are gaining). Once you have calculated per unit opportunity cost , the country with the lowest one has a comparative advantage.

The benefit of comparative advantage is the ability to produce a good or service at a lower opportunity cost. A comparative advantage gives companies the ability to sell goods and services at reduced prices than their competitors, gaining stronger sales margins and greater profitability.

What are the pros and cons of free trade? Free trade is good because it spreads economic opportunity and enables countries to accumulate foreign currency. However, this can destroy entire job sectors in other countries and make smaller nations economically dependent on larger ones.

Free trade has allowed many countries to attain rapid economic growth. By focusing on exports and resources where they have a strong comparative advantage, many countries have been able to attract foreign investment capital and provide relatively high-paying jobs for local workers.

What is comparative advantage comparison? ›

Comparative advantage is often contrasted with absolute advantage. Where absolute advantage refers to the ability of an entity to produce a greater quantity of a product or service, comparative advantage refers to the ability to produce goods and services at a lower opportunity cost compared to the competition.

Because of comparative advantage, another producer who is less technically proficient at producing the good might nevertheless be able to profitably sell you that good at a price lower than your cost of making the good yourself. That other producer can do so if it has a comparative advantage at producing that good.

For example, if a country is skilled at making both cheese and chocolate, they may determine how much labor goes into producing each good. If it takes one hour of labor to produce 10 units of cheese and one of of labor to produce 20 units of chocolate, then this country has a comparative advantage in making chocolate.

The advantages include greater access to low-priced, high-quality goods, lower prices overall, greater efficiency and innovation in production, increased economic development and living standards, and overall economic growth.

Fluctuations in the exchange rate, which affect the relative prices of exports and imports and cause changes in demand from domestic and overseas customers. Import controls such as tariffs, export subsidies and quotas – these can be used to create an artificial comparative advantage for a country's domestic producers.

the ability to produce a good at a lower opportunity cost than another entity. For example, for every pillow Owen embroiders his opportunity cost is ‍ scarves knitted, while Penny must forego ‍ scarves for every pillow she embroiders, so Owen has comparative advantage in embroidering pillows.

They differ from one another in causation and methods used. For example, businesses seeking a better competitive advantage want to set themselves apart from other companies.In contrast, businesses seek to establish a comparative advantage because of economies of scale.

Comparative advantage : Let's say that Country A is able to produce wheat more efficiently than Country B. Country A has a comparative advantage in wheat production, and it makes sense for it to specialize in wheat production and trade with Country B for other goods and services.

For example, if Japan and Italy can both produce automobiles, but Italy can produce sports cars of a higher quality at a faster rate with greater profit, then Italy is said to have an absolute advantage in that particular industry.